1. Field of the Invention
The present invention relates to exchanges, e.g., forward auctions, reverse auctions and/or pure exchanges, especially combinatorial exchanges, and, more particularly, to a method for discouraging bidders and bid takers from attempting to manipulate the exchange results by pricing one or more bids in a manner that does not reflect (or express) the actual valuation of the item(s) of each bid while improving the obtainment of auction objectives.
2. Description of Related Art
One problem with combinatorial exchanges, e.g., forward auctions, reverse auctions and/or pure exchanges, is that a bidder often bids strategically, namely, he will not reveal his true cost for providing an item in a reverse auction or his true value for acquiring an item in a forward auction. Rather, in a reverse auction, bidders bid the highest price they believe they can sell items for and in a forward auction bidders bid the lowest price they believe they can acquire the items for. As used herein, “exchange” means a forward auction, a reverse auction and/or pure exchange i.e., a combined forward auction and reverse auction.
In a reverse auction, a bid taker may have some knowledge about a bidder's true cost, which could be utilized to reduce total procurement cost, for instance, by bargaining with the bidder. Similarly, in a forward auction the bid taker may have some knowledge about one or more bidders' true values, which could be utilized to increase the total procurement revenue. Unfortunately, a key shortcoming of prior art combinatorial exchanges is that they do not enable bidders and/or bid takers to make any use of this knowledge.
For example, consider a reverse auction where there are only two bidders A and B bidding to supply one item, and bidder A has a much lower cost of production than bidder B, and the bid taker, as well as bidder A, knows this. If this reverse auction is run, bidder A will bid a price only slightly below the best price that bidder B can bid. This may not be satisfactory to the bid taker, and he may choose instead to enter a less systematic bargaining process with the bidders in order to drive bidder A down to a lower price. Alternatively, the bid taker may also run a non-binding auction and enter a less systematic negotiation process with the bidders afterwards, but this will cause the auction and the bids in it to lose credibility and meaning.
The same phenomenon also occurs in the more complex combinatorial exchange setting. Here, any ad-hoc negotiation process is certain not to lead to economically efficient allocations because of the complexities inherent in finding such allocations. Thus, the inability of combinatorial exchanges to let bidders and/or bid takers exploit their knowledge about the respective bid takers and/or bidders prevents adoption of suitable combinatorial market clearing technology and, as a result, leads to economic loss.
What is, therefore, needed, and not heretofore available, is a method for solving exchanges, especially combinatorial exchanges, that enables knowledge or suspicions of preferences of bidders and/or bid takers to be taken in account when determining an allocation. Desirably, the present invention encourages bidders to bid their true valuation and bid takers to obtain more competitive outcomes. Still other advantages of the present invention will become apparent to those of ordinary skill in the art upon reading and understanding the following detailed description.